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HQ 557075


May 5, 1993

CLA-2 CO:R:C:S 557075 BLS

CATEGORY: CLASSIFICATION

Ms. Nanette Dean
Dean Steel Buildings, Inc.
2735 Hanson Street
Ft. Myers, Florida 33901

RE: CBERA treatment of pre-engineered metal structural building frames; double substantial transformation ; 19 CFR 10.195(a); HRL 555532; HRL 556483

Dear Ms. Dean:

This is in reference to your letters dated December 28, 1992, and March 30, 1993, on behalf of Dean Steel Buildings, Inc. ("Dean"), requesting a ruling regarding the eligibility of pre- engineered metal structural frames used in construction of a metal building system, for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701- 2706). The metal components are to be produced in Honduras.

FACTS:

In Headquarters Ruling Letter (HRL) 556483, dated June 15, 1992, we responded to Dean's request for a ruling covering the eligibility under the CBERA of the pre-engineered metal building system, to be imported into the U.S. as kits consisting of various component parts. You now advise that the offshore manufacturing facility will be developed over a three to five year period of time. As a result, the first components of the metal building system that will be produced off-shore, and imported into the U.S., will be the structural frames, the subject of this request. As further clarified during a conversation with Burton Schlissel of my staff, we understand that that these frames will be fabricated using the identical manufacturing procedures and design specifications as described in HRL 556483, in which we ruled on the complete metal building system.

The facts covering the production and assembly of the imported structural frames (under "Rafter Sections and Columns Composing Rigid Frames") were described in HRL 556483, and are incorporated by reference. In summary, Dean claimed in that earlier request that the steel material imported into Honduras will undergo a double substantial transformation, in the production of the rafter sections and columns, and other fabricated parts of the building, so that its cost or value could be counted toward
satisfying the 35% value-content requirement under the CBERA. The subject request relates only to the rafter sections and columns, which compose the structural frames.

ISSUE:

Whether the steel material imported into Honduras will undergo a double substantial transformation in the production of rafter sections and columns, so that its value may be counted toward satisfying the 35% value requirement under the CBERA.

LAW AND ANALYSIS:

Under the CBERA, eligible articles the growth, product or manufacture of designated beneficiary countries (BC's) may receive duty-free treatment if such articles are imported directly to the U.S. from a BC, and if the sum of 1) the cost or value of materials produced in a BC or BC's, plus 2) the direct cost of processing operations performed in a BC or BC's, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See, 19 U.S.C. 2703(a). The cost or value of materials produced in the U.S. may be applied toward the 35% value-content minimum in an amount not to exceed 15% of the imported article's appraised value. See, section 10.195(c), Customs Regulations (19 CFR 10.195(c)).

Honduras is a BC. See, General Note 3(c)(v)(A), Harmonized Tariff Schedule of the United States (HTSUS). Based on the photographs and descriptions of the pre-engineered structural frame, it appears that it is classifiable under subheading 7308.90.30, or subheading 7308.90.60, HTSUS, "Columns, pillars, posts, beams, girders and similar structural units, Other", either "not in part of alloy steel" (subheading 7308.90.30) or "Other", (subheading 7308.90.60). Both subheadings are CBERA eligible provisions.

Where an article is produced from materials imported into a BC from non-BC's, as in this case, the article is considered a "product of" the BC only if those materials are substantially transformed into a new or different article of commerce. See, 19 CFR 10.195(a). Moreover, the cost or value of materials from non- BC's may be counted toward satisfying the 35% value-content requirement only if there is a finding that the materials have been subjected to a double substantial transformation in the BC. See, (19 CFR 10.196(a)).

A substantial transformation occurs when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. See Texas

Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

Summarizing our analysis in HRL 556483 covering the structural frames, we found that the production of the I-beam by cutting bar stock to length to make 2 flat bars, cutting sheet steel to length and width to form a strip of sheet steel, welding the three pieces together, and punching holes in the I-beam constitutes a substantial transformation. We found further that a second substantial transformation occurs as a result of the operations of 1) assembling the rafter section and column by means of welding the I-beam and end plates together (in some instances, also welding tabs), 2) painting the completed rafter section and column, and 3) performing quality control and testing.

Accordingly, we find that the imported rafter sections and columns are considered to be "products of" Honduras. Further, the cost or value of the bar stock and sheet steel to be imported into Honduras and used in the manufacture of the rafter sections and columns may be included in the 35% value-content calculation.

HOLDING:

The imported rafter sections and columns will be considered "products of" Honduras. In addition, the rafter sections and columns will undergo a double substantial transformation as a result of the processing operations performed in Honduras. Therefore, the cost or value of the steel imported from foreign countries and the U.S. that are used in the production of these components may be included in the 35% value-content calculation for purposes of the CBERA.

Sincerely,

John Durant, Director
Commercial Rulings Division

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